Unification of criteria on unfair terms in mortgage loans

In February, the Court of First Instance No. 50 of Barcelona presented some unifying criteria for decisions on unfair terms in mortgage loans in order to contribute to the resolution of such matters in a more rapid, uniform and transparent manner.

The Court of First Instance No. 50 of Barcelona sets out the following criteria for the different terms:

• With regard to the clause on costs arising from the constitution of the mortgage, the proposal makes a difference depending on the type of costs. Firstly, the payment of stamp duty by the borrower would not be considered unfair given that it complies with the relevant tax regulations (article 29 of the Law on Property Transfer Tax (stamp duty) and Documented Legal Acts) which considers the borrower to be the taxable person and therefore does not infringe the Consumer Law (in Article 89(3) thereof) which protects the consumer against the payment of taxes when the taxable person is the entrepreneur. Secondly, the payment of the expenses resulting from the valuation of the property would neither be considered unfair, since it is the borrower who must prove the sufficiency of the value of the collateral offered to the lender. Finally, with regard to notary fees, registration fees and agency fees, this proposal advocates the equitable distribution of costs, citing the interest of both contracting parties in the success of the mortgage-backed loan. The assumption of the totality of the expenses by one of the parties would imply a significant imbalance in the rights and obligations of the parties. It is this last point that differs most from previous resolutions on this matter.

• With regards to early termination clauses, this proposal maintains the position of declaring them unfair (and therefore, null and void and deemed not to be included in the contract) when the breach alleged by the bank is not essential and sufficiently serious, i.e. the failure to comply with any payment obligation or installment is not considered sufficient to terminate the loan. The use of the early termination should be exceptional and not a standard way to proceed before any type of breach.

• Default interest clauses shall be considered unfair when they exceed the agreed remuneration interest by more than two percentual points, bearing in mind that nullity shall only affect the excess over the agreed remuneration interest.

• Finally, this proposed criteria considers that there is no lack of transparency in the variable interest clauses linked to Mortgage-backed Loans Reference Index (IRPH), whereas, on the contrary, it requires a transparency control for multi-currency mortgages (which, if declared null and void, would remain as a loan granted and payable in euros) and clauses relating to the limits of variability in the interest rate or so called "floor clauses" (which, if declared null and void, would entail the repayment of amounts unduly paid from the date of signing the contract plus the legal interest until the date of the judgment).

Unfortunately, all these criteria do not impose doctrine in this regard and, until the approval of the new Mortgage Law, all the points set forth in this informative note must be resolved judicially on a case-by-case basis.